Create natural monopolies to avoid competition

The UK Competition Commission has just said that the bus market in the UK ‘needs more competition’. But is it actually a surprise that there is not much competition for individual bus routes?

A single bus route away from the major city centres only generates enough revenue to support the costs of one operator. As soon as there are two operators the amount of revenue won’t increase much (if at all) but there will be twice the costs in the market and suddenly both companies are making a loss. One operator on a route is a natural monopoly and more than one operator is unstable.

If they really want to bring in competition then they need to group routes together so that there is enough revenue to allow two or more companies to compete and still make a profit. At the moment an individual bus route is too small.

Taking this into your business – can you fragment your market so that it isn’t a stable situation to have more than one supplier and create a monopoly situation for yourself?

 

 

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